ns to be greater in the future than they are today (Shaffer, 1995). There are a number of other credible signals which management may communicate to the market, including the maintaining or raising of dividend levels. The market acts on the information communicated to it by firm management through the application of valuation theory.
Agency theory also works in instances of branch and subsidiary operations located at a distance from corporate headquarters (Staw, 1991). In simplest form, an agency problem arises when a local manager in a decentralized organization effects an action at the local level: (1) which is in the interests of the local unit of the organization or of the local unit manager; and (2) which is within the framework of delegated authority within the organization; but (3) which may not be in the best long-term interests of the organization.
A serious example of an agency problem in this context would be one in which a local unit manager curtailed essential long-term expenditures in search of short-term growth (Staughton, 19
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